Reverse Mortgage Interest Rates Less of a Barrier
CHIP interest rates lowered...HomEquity Bank (Banque HomEquity), Canada’s newest chartered bank, has announced the reduction of its variable rate on CHIP Home Income Plans to 3.75%.
According to the news release, “these significantly lower rates are made possible by HomEquity Bank’s debut last month as Canada’s newest chartered bank. In becoming a Schedule I Bank, the company has gained immediate access to retail deposits sourced through deposit brokers, both diversifying its sources of funding and lowering the cost of borrowing.”
HomEquity Bank also offers a discount program that further reduces the interest rate on a CHIP Home Income Plan to as low as 3.25% to customers who pay their full interest annually.
Reverse mortgage rates have traditionally been higher than forward mortgage rates and this has been a real or psychological barrier for many borrowers. Rates matter, but administrative fees, appraisal costs and ongoing charges can erase any advantage offered by lower rates. The cost of borrowing must go well beyond quoted rates.
The following example was provided HomEquity Bank to explain their interest rate charges:
CHIP interest rates compound semi-annually (That is, interest on interest every 6 months, as is the practice in most traditional mortgages). Based on a CHIP Home Income Plan of $150,000 and the rate of 3.75%, the Annual Percentage Rate (APR), which is calculated as the rate of interest plus closing costs, is 3.86% over 10 years, 3.96% over 5 years, and 4.78% over 1 year. When full annual interest is paid, the rate is decreased by 50 bps to 3.25% and the APR is 3.36% over 10 years, 3.46% over 5 years, and 4.27% over 1 year.
• HomEquity Bank ( www.homequitybank.ca ) is a Schedule I Canadian Bank and a wholly-owned subsidiary of HOMEQ Corporation, which trades on the Toronto Stock Exchange under the symbol HEQ—see www.homeq.ca.
• HomEquity Bank (previously Canadian Home Income Plan Corporation) originates and administers Canada's largest portfolio of reverse mortgages under the CHIP Canadian Home Income Plan brand. As of September 30, 2009, the mortgage portfolio reportedly consisted of approximately 7,000 reverse mortgages with an accrued value of $837 million, secured by residential properties across Canada then worth approximately $2.3 billion.
• HomEquity Bank sells direct to consumers and through a referral network which “includes all major Canadian banks, credit unions, mortgage brokers, investment and financial planning firms.”
For more on reverse mortgage costs: See the "Before Signing" section ( page 73to 89 ) of Chapter 5 "Starting Smart" to learn about the 7 key factors to consider when shopping for a reverse mortgage. Details in factor #4 Total Cost of Set-up and Adminstration will make you aware of the issues that can build cost and erode equity.
According to the news release, “these significantly lower rates are made possible by HomEquity Bank’s debut last month as Canada’s newest chartered bank. In becoming a Schedule I Bank, the company has gained immediate access to retail deposits sourced through deposit brokers, both diversifying its sources of funding and lowering the cost of borrowing.”
HomEquity Bank also offers a discount program that further reduces the interest rate on a CHIP Home Income Plan to as low as 3.25% to customers who pay their full interest annually.
Reverse mortgage rates have traditionally been higher than forward mortgage rates and this has been a real or psychological barrier for many borrowers. Rates matter, but administrative fees, appraisal costs and ongoing charges can erase any advantage offered by lower rates. The cost of borrowing must go well beyond quoted rates.
The following example was provided HomEquity Bank to explain their interest rate charges:
CHIP interest rates compound semi-annually (That is, interest on interest every 6 months, as is the practice in most traditional mortgages). Based on a CHIP Home Income Plan of $150,000 and the rate of 3.75%, the Annual Percentage Rate (APR), which is calculated as the rate of interest plus closing costs, is 3.86% over 10 years, 3.96% over 5 years, and 4.78% over 1 year. When full annual interest is paid, the rate is decreased by 50 bps to 3.25% and the APR is 3.36% over 10 years, 3.46% over 5 years, and 4.27% over 1 year.
• HomEquity Bank ( www.homequitybank.ca ) is a Schedule I Canadian Bank and a wholly-owned subsidiary of HOMEQ Corporation, which trades on the Toronto Stock Exchange under the symbol HEQ—see www.homeq.ca.
• HomEquity Bank (previously Canadian Home Income Plan Corporation) originates and administers Canada's largest portfolio of reverse mortgages under the CHIP Canadian Home Income Plan brand. As of September 30, 2009, the mortgage portfolio reportedly consisted of approximately 7,000 reverse mortgages with an accrued value of $837 million, secured by residential properties across Canada then worth approximately $2.3 billion.
• HomEquity Bank sells direct to consumers and through a referral network which “includes all major Canadian banks, credit unions, mortgage brokers, investment and financial planning firms.”
For more on reverse mortgage costs: See the "Before Signing" section ( page 73to 89 ) of Chapter 5 "Starting Smart" to learn about the 7 key factors to consider when shopping for a reverse mortgage. Details in factor #4 Total Cost of Set-up and Adminstration will make you aware of the issues that can build cost and erode equity.
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